5 Terrible Financial Decisions I Made in My 20s
I haven't always been an expert on frugal living. In fact, there was a time in my life when I made some very questionable financial decisions that I thought I would never own up to. Until now.
Your 20s can be a tough time. You're just getting the hang of this whole "adult" thing, but you still feel like a teenager. This can lead to a whole lot of irresponsible spending, hungover work days, and dramatic relationships. But for every bad decision, there's a chance to learn from your mistakes. Here are the five worst financial decisions I made in my early 20s, and the wisdom I gained from making them.
The mistake: I spent hundreds decorating the studio apartment I moved into with my unemployed boyfriend...
...And I put it all on a credit card. Sure, I didn't know my (now ex) boyfriend would fail to find a job for the following year and a half, but I still should have known better than to spend $100 on a hand-knit throw blanket at Anthropologie with the logic that I would soon be "saving money on rent." My poor dating decisions aside, this was a real low point for me in terms of fiscal responsibility.
The lesson: Spending money that you don't yet have is not a wise decision.
Finances can be just as unpredictable as relationships, and it's better to stay ahead of the game by keeping money in a savings account than to fall behind buying things on credit.
It's okay to use a credit card to buy a car or a major appliance that you can't finance all at once, but even then, you should have a clear plan of how your future income will support paying it off. You probably shouldn't buy anything on credit if you're working part-time at a tutoring center and sharing your groceries. Live and learn.
The mistake: I opened a Neiman Marcus credit card at age 22.
To be honest, I had no business walking into a high-end department store like Neiman Marcus to begin with. I was a student with a part-time job. But as I browsed the Bobbi Brown cosmetics, a Marc by Marc Jacobs dress began whispering my name from the women's apparel department, and I followed its call. When the cashier told me I could save 20 percent by opening a card, I didn't stop to think. It was the only way I could even begin to afford what I was buying, which should have been a clue that I shouldn't be shopping there. To make matters worse, I opened several other store cards the same year.
The lesson: Store credit cards can be a great way to save money at your favorite stores, but they can also negatively impact your credit.
You should focus on cards that you'll use frequently, so you can keep them active and get the ongoing perks. The initial discount is typically not worth the hard hit to your credit, so focus on cards that continue to reward you. You should also refrain from opening too many in the same period of time, because if you allow them to become inactive, your credit score will take several blows at once when all these accounts close. Keep in mind, you can bury hard inquiries on your credit by regularly checking your credit score on Credit Karma, which has a free app that anyone who's interested in getting their credit on track should download.
The mistake: I "took advantage" of my interest-free store credit card by purchasing a full-price Coach watch before graduating college.
That, and some full-price UGG boots, a Longchamp bag, and several French Connection dresses, and that's not even the whole list. Now that I spend my day scouring the internet for the best deals, the catalogue of mistakes I've made at department stores over the years really makes me cringe.
The lesson: There are very few reasons to ever buy something full-price.
Nope, having an interest-free store credit card is not one of those reasons. If I'd thought to shop online instead, I could have found savings that would have more than offset the interest rates on a regular credit card. And that's not to mention the fact that I was spending money I didn't have on a designer item I didn't need. Try not to question my intelligence or sanity over this one, I was bright-eyed, bushy-tailed, and still unaware of what it would mean to pay my own bills without help from my very generous parents. Adult me cannot stress this enough: Do not pay full price for apparel and footwear at department stores.
The mistake: I bought my textbooks at the book store on the first day of class.
If I had planned ahead to rent or buy used, I could have saved hundreds of dollars. But while I kept my fridge well stocked with beer, I was not nearly as adept at planning ahead for the things I needed. I also neglected to make shopping lists for my entire college career, which meant I often bought things I didn't need. I've been out of college for years, and yet still have about five leftover boxes of staples, 20 unfinished Post-it pads, and not a single pen in sight.
The lesson: Buy the things you need ahead of time.
Strategically planning for future purchases also helps you become more aware of your budget, so you'll be less likely to make impulse purchases on items you don't need, and you'll also be able to scope out the best deals on the necessities.
The mistake: I didn't save any money for almost ten years.
At this point, it should be obvious that I was buying more than just the necessities. This is probably the most common mistake people make when they are young. I thought I was broke because I was in college, but I wasn't actually keeping track of my money.
The lesson: When you've paid your bills and you're ahead of the game, put money into a savings account.
Even if you get a really nice bonus and want to celebrate, don't get carried away - get yourself a nice meal and then put the rest aside for emergencies. There are plenty of things in life you can't prepare for, and most of them cost money.